The search for a new home is an exciting process, not to mention time-consuming and demanding. However, there is a way to save some valuable time and effort before you set out on your home hunting mission. First, get a mortgage pre-approval.
The Canadian housing market is quite competitive to begin with, so it's in a prospective homebuyer's interest to be armed with a lender's pre-approval if only to signal to a seller or real estate agent that your intentions are legitimate. On top of that, sellers are often more comfortable once they know that a lender has agreed to finance your purchase, and will in all likelihood treat your offer more seriously than those without a similar agreement.
The process of getting a pre-approval is quite simple. Whether you do it online or visit a bank or mortgage broker, you should have access to your recent pay stubs, income tax statements, list of assets, liabilities and monthly expenditures plus a firm down payment figure. In Canada, a minimum of 20% down payment is usually preferred by most banks and mortgage companies, however, if that sum is less, a calculation of CMHC mortgage insurance will have to be added to your mortgage.
Once this information is processed and your credit history is checked, the lender will provide you with a financial estimate of what you qualify for in terms of a home loan and a rate of interest on your mortgage, which may remain intact for 30 to 120 days depending on the lender. Should you find a home within that timeframe, you have some flexibility with the capped interest rate or the ability to negotiate for a better rate.
As you can see, the mortgage pre-approval is beneficial in that it allows you to adjust your budget and determine the price range of a home you can afford. In addition, you can look at amortization options and different payment structures. More importantly, you can confidently make an offer on a home of your liking knowing that you'll be able to finance the purchase.
